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Drawdown pension savers hit as GAD rate drops

Savers in drawdown could see their maximum income cut after the GAD rate was reduced from 3.25 per cent to 3 per cent.

The cut, which comes into effect in March, means people in drawdown will see the income they are able to take from their fund each year fall.

LV= head of pensions and investments Ray Chinn says a 65 year old with a £100,000 drawdown pension pot will be able to take up to £7,080 a year in retirement income, compared to £7,340 when the GAD rate was 3.25 per cent in January.

Chinn wants the Government to revise the way drawdown limits, which are currently linked to gilt yields, are calculated.

He says: “The recent FCA review of annuities highlights just how important it is for people to shop around and consider all the retirement income alternatives available, to get the most out of their pension fund. As people are spending longer in retirement, income drawdown product could provide many with the flexibility they require.

“However LV= would like to see the calculation for the income drawdown limit revised so that it is not linked to gilt yields. We believe this would help better protect clients’ income from volatility in the market.”

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